Jonathan Amponsah, Founder of The Tax Guys and tax app Easy Returns Online, explains what you can and can’t claim against your business in the UK
As long as an expense is incurred “wholly and exclusively” for the purpose of your business, HMRC says it can be claimed against your income.
But, there are also “other expenses” that could possibly be claimed even if they have a personal element to them, such as holidays, entertainment and leisure.
Here are some expenses that, if done correctly, you can claim.
Food and drink can be claimed under these circumstances if you have a contractual obligation to provide it.
Say you’re running a training course and this includes tea, coffee, lunch and so on – you’re allowed to claim this because you’re under a contractual obligation to give the delegates food.
You are also allowed to claim £150 a year per head for staff entertainment. Even if it’s just yourself, as director of a limited company, you can still claim this expense against your income. Because you (the director) are classed as an employee.
But can you claim for your holiday? In some circumstances, yes.
Provided the primary purpose of the trip is business, it’s fine to add a few extra days holiday. But remember that you can’t claim the extra cost of staying against business income.
For example, if you spend £1000 on the business trip and then the extra cost of a couple nights is £200, you can then pay the company back £200 and still claim the £1000 against its income, because the primary purpose of the trip was for business. Make sure you keep proper records, notes and also board minutes to document the main reason for the trip.
If you decide to bring your spouse but they’re not a business partner or employee, then all you have to do is separate the cost; your spouse’s flights will be disallowed but your flight will be allowed and so on.
So, simply put, as long as the primary purpose of the trip is business, you can claim against any cost in relation to that. Other non-business related cost will be disallowed.
If you’re on a business trip to, say to a tech conference in California, and decide to go to the beach, without incurring additional cost, that doesn’t mean you’ve ruined the chance of claiming the cost of the trip against your income.
Because the original purpose of the trip was for business, you can still claim the whole amount through the company. All you have to do is keep receipts for everything that you’re meant to be doing on the business trip and claim that against your income, your little fun on the beach doesn’t matter. Why? Because there is no additional cost and it’s just an incidental benefit from the main business purpose.
However, if you turn your holiday into a business trip, then you absolutely cannot claim expenses against your income. When you go on holiday and the purpose of the trip is personal but then you decide to do some business while over there, you’ve waived your right to claim any expenses. Because the purpose of the trip was personal, you can’t claim any of the cost incurred while doing business.
What else can you claim?
School fees, care home fees, staff holidays, and even attending Comic Con can all be claimed as a business expense in certain circumstances if you run your business through a limited company rather than sole trader or partnership.
If you provide your employees with vouchers that they can exchange for a holiday, HMRC allows you to claim against that, as long as you report this cost as a benefit to your staff.
So as director, you can have your company pay for your holiday. The company then reports this as a benefit – much like company car or medical benefits and pays Class 1 National Insurance on the cost and you as an employee pay tax on it, either 20 or 40 percent.
Then, the company can claim the cost of this benefit against its income. Is it worth it? Yes, because the crucial point is that the company would have to pay higher tax on the holiday cost if it went through the payroll, so this way you can keep the salary cost down. This goes for school fees, care home fees and leisure activities.
There is a helpful guide on HMRC’s site under its expenses and benefits section on this so if you’re not using a tax adviser or an accountant, you might find it useful.
My advice is to look carefully into any cost of your business, whether you’re a sole trader or director of a limited company, because even the least likely cost might be claimed against, as long as it’s done correctly.
And make sure you get the paperwork and evidence right. Otherwise, you might be paying more tax than you have to, allowing your business to bleed money that it perhaps can’t afford.
ABOUT THE AUTHOR
Jonathan Amponsah CTA FCCA is an award winning chartered tax adviser and accountant who has advised many clients over the last decade on tax deductible expenses. Jonathan is the founder and CEO of The Tax Guys. He is also the co-founder of Easy Tax Returns (a tax return app to help tax payers avoid stress, penalties and find their peace).